Is Apple About to Fall?
A few weeks ago I mentioned that I would not buy or short Apple stock. I changed my opinion now. Is Apple (the stock, to be precise) to fall from grace? I believe it is.
Yes. The economy sucks. Unless you live on planet Mars, or you are a Federal Reserve Bank governor who claims that the dropping iPad prices are the reason that the economy is good (or whatever he said), you already know that the economy is in the tank. For more than 3 years it has been in the tank. However, there were few exceptions – Apple stock more than doubled from the peak set before its pre-2008-bust. Another miraculous recovery at which I am dumbfounded is in the bonuses paid to the hard workers on Wall Street firms and IBs, despite the damage they have to their own firms, retirement portfolios, and the worldwide economy.
Now, I for one believe that the economy has entered another recession (per official definition) in June 2011. The price of Apple stock is yet to reflect this reality.
Second reason: Market conditions
Apple is the darling of many funds. Several hedge funds are receiving redemption notices. Several stocks and even commodities are in liquidation mode. When you are in a liquidation mode, you don’t see the value. You just sell. There is an age old saying among financial professionals, “When you can’t sell what you have, sell what you can.” They can’t sell certain things like bank shares ’cause there is little value in them. But they sure can sell Apple shares on which many have hefty gains. So, I expect Apple shares to be sold and sold in size.
The health of the financiers matters to a whole lot of things – including supporting stock prices. As go the financials, so goes the market, even the high fliers with justifiable share prices like Apple. Remember that the financiers (i.e. Banks) are in trouble. Again. If you don’t believe just the fundamentals, look at the chart of XLF index.
To me XLF chart pattern appears like a pennant with strong support at 12. For the last 2 months this support was tested and in 7 tries, the XLF price breached this support twice. The first time in early Aug 2011 and immediately recovered ground back into the pennant. This time on Sept 30, XLF breached that support decisively, that too at the end of the trading week to result a bearish weekly close.
What is a pennant, you ask? (From Babypips.com): A bearish pennant is formed during a steep, almost vertical, downtrend. After that sharp drop in price, some sellers close their positions while other sellers decide to join the trend, making the price consolidate for a bit.
- 17 (peak)-12(support breach)=5;
- 12 (support) – 5 = $7 (target price).
$6-$7 can also be seen as a possible support based on the XLF Monthly chart below which shows no support till 2009 low of $6.x.
As go the financials, so goes the market. It will be hard even for Apple to buck the market trend. So, as go the market, so goes Apple.
Currently this may be the least of the worries for Apple. For the time being, there is nothing on the scene that is really threatening Apple’s juggernaut. I think iPhone 5 will be a big hit. Android will sell well. But iPhones will steal bigger market share from Blackberry. However, the iPad may be vulnerable. Competition is aggressively cutting prices. Readers of this blog have seen some discussion on Amazon’s Kindle Fire and its possible threat to Apple’s iPad. Just yesterday Best Buy announced steep price cuts to Android tablets. (via Android Central):
Best buy has released a statement saying that as of Oct.1, the price of the HTC Flyer (read our review) will drop from $499 to $299. This is hot on the heels of a similar announcement about the BlackBerry Playbook, which also saw a $200 price drop to $299. After seeing products sit on the shelves, and fire sales, and cheap competitors, it looks like retailers (and likely OEM’s — Best Buy isn’t eating the entire loss I’m sure) have realized that there are a lot of people who want a tablet device, but don’t want to spend $500-$800 on a Galaxy Tab 10.1 or an iPad.
Now this is the part where things get interesting. The Kindle Fire looks to be a huge hit with Android fans who want a stock tablet experience hacked in place for a couple Benjamins. For $100 more, you get twice the storage, cameras, and the coveted SDcard slot. The Flyer is already bootloader unlocked, and at this price development should take off like a rocket. And for those that don’t feel like rooting and fiddling with things, we already know that Honeycomb (and we assume Ice Cream Sandwich) is coming for the Flyer. That decision just got tougher.
Personally, I have an Android phone (HTC Droid Incredible), a HP Thinkpad (with web OS) and an Apple iPad. I use all these for web browsing, checking mail, listening to TORi etc. I don’t particularly see an added advantage to having iPad over any other Android device. That said, I love my iPad and I am no ordinary consumer. For a proven and stable platform like Android, it is nearly impossible for normal consumers to ignore these low prices. I think they will switch to Android tablets. Apple will have to cut prices, which will translate to margin shrinkage and lower profits three to 6 months down the road. So, fundamentally Apple is a SELL.
Sell signal on the daily chart (rising wedge support breached):
Based on the monthly chart, key supports are at 350, 250 and solid support at 200
You don’t need a fifth, damn it! 🙂
Disclosure: As of Oct 2 (pixel time) I do not have any position in Apple. I am considering buying some short-term puts. Again, this type of trading is not for faint of hearts. If you are already sitting on hefty profits on your Apple position, it may be the best time sell. Then again, I could be wrong – just as I have been wrong several times before. OK, OK, this is my FIFTH, how about that for tongue-in-cheek comment? 🙂 [I really hope most of you get my joke here.]